No Time to Buy

In last Thursday's column, Licking My Chops and Looking to Buy, I cited a couple of support levels that were presenting some buying opportunities. First was the March 13 gap in the Russell 2000 that had been probed at the morning lows. I noted that the "morning low was 816.70, well inside of that gap. On that dip, I bought some shares of the iShares Russell 2000 (IWM) for underinvested accounts. If the RUT closes near the session lows or near the bottom of that gap, I'll add to my positions at Rydex."

I waited until Friday morning, as the RUT had pulled back closer to the bottom of that gap and made a low of $815.99, less than 2 points from the gap. The Rydex pricing (at 10:45 a.m. EDT) at $819.39 was not too bad. And since then, the RUT has popped to new 10-month highs. So on Monday, I took some profits in those positions at the morning pricing of $843.83, which gave me almost a 3% gain in one day's trading, and I am still holding up to 20% long in that index.

Second, there was the Dow Jones Industrial Average, which had been flirting with the big round-number support at 13,000. On this score, in last Thursday's column, I said, "If the 13,000 level continues to hold, it will be the new short-term support level. That's not to say it can't be broken -- indeed, it should be broken at some point. But, for now, it's a level to buy." Friday's low was just above it at 13002.77 and from there the Dow has popped 260 points in just two days of trading.

So the question is, did you buy as the Dow was messing with that 13,000 level? If not, why not? For those who don't think a drop of 286 points from the recent highs is worth trading, I'd give my favorite response: "I don't know why you are wasting your time reading this column, because if you don't care about a 280-point drop followed by a 260-point rebound in the course of a few days, I have nothing to offer you (and the market probably doesn't either)."

Speaking of the Dow, it's noteworthy that it has so far been the lone holdout among the averages in making new highs for the move. Only the Dow has so far refused to better its recent high from March 16 at the 13,289 level -- it has come within 24 points of its prior high. Though odds are good that the Dow will join the other averages and make a new multi-year high, I will not be a buyer at that time. To the contrary, I will likely be looking to dump some of my positions in anticipation of another pullback.

The S&P 500 (SPX) has also scored a new multi-year high. But it's worth noting that this morning, while the SPX gapped up and made new highs, the emini futures actually gapped down from 1415.00 and, as of 2 p.m. EDT, the futures haven't filled that opening gap. Longer term -- going back to the all-time highs in October 2007 -- just those three overhead gaps remain.

In the SPX, I am going to be on the lookout for a move up to the top of that gap from May of 2008 at the 1426.63 level. We've already gotten pretty close. Once it gets there, I'll expect some stalling and another pullback, and will likely do some selling at that level.

As for the indicators, remarkably, the market still isn't close to overbought, despite the sharp rebound off last week's lows. Of course, last Thursday, the oscillator settled at a very oversold -150. That was an indication to buy the dip. Now, it's just climbing back to neutral. The McClellan Oscillator also settled yesterday at a very neutral +0.347. As previously noted, the oscillator has been artificially depressed by the weak bond market.

The Market Volatility Index (VIX) hasn't made a lower low yet, but at these very low levels, I'm not sure it would be significant. What may be equally as important is its direction. So, for example, if the VIX were to continue to move higher as the market moves higher, I would have to rate that mildly bullish for the short term.

Long SPX and Russell 2000 and precious metals funds at Rydex up to 50% levels. Also holding high-yield bond funds up to 5% levels. Long junk bond funds at Fidelity up to 20% levels; holding bullish credit and debit spreads in SPY and DIA options; holding bullish credit spreads in IWM puts and bullish short puts in the GLD. Short distant April and May calls in the SPY (a bearish position).